BEMF: The proposed changes in the Energy Act make the investment environment in Bulgaria uncertain and unpredictable

We assess the proposals for amendments to the Energy Act by members of the Parliamentary Committee on Energy as too radical and insufficiently analyzed. They pose a risk to both the system and Parliament, whose legislative potential is visibly exhausted. This was stated by the Bulgarian Energy and Mining Forum in an official position distributed to the media. BEMF points out that such profound changes are being undertaken in the absence of a National Energy Strategy - a key document for the implementation of a number of tasks for transition and adaptation of the energy sector to new realities in Europe - the Green Deal and market liberalization in Bulgaria. We publish the entire position of BEMF.

“Regarding the submitted document and the subsequent mixed comments in the media, as well as the lack of reaction from the Ministry of Energy, experts of the organization, BEMF expert analyzed the proposals and their potential effects if they are voted and entered into legal practice.

We assess the proposals by their nature and volume as too radical and insufficiently analyzed. They concern extremely complex topics and thus submitted only less than 2 months before the upcoming parliamentary elections pose a risk. Risk for both the system and Parliament, whose legislative potential is visibly exhausted. We note that such profound changes are undertaken in the absence of a National Energy Strategy - a key document for the implementation of a number of tasks for transition and adaptation of the energy sector to new realities in Europe - the Green Deal and market liberalization in our country.

Such changes should not be confused, moreover, they should be implemented as comprehensive measures to liberalize the wholesale market and, most importantly, the conversion of coal regions and the construction of new low-emission energy within our obligations under the Green Deal and meeting the challenge of reducing greenhouse gas emissions by 55% by 2030. The legislator and the state administration must give the highest priority to these necessary changes in the legal framework, ensuring smooth and conflict-free implementation of these new policies.

What are the other conclusions from our analyses:

The proposed bill to amendment of Energy act lacks a specific and detailed integrated analysis of the effect and consequences of the proposed profound changes in the electricity sector, as well as convincing motives.

According to our analyses, the risk for security of electricity supply to all end users increases. The proposed provision of households with electricity directly from the exchange presupposes the existence of a well-regulated and well-functioning exchange for retail consumers, which is not yet a fact. There is a risk of unsustainable operation of most electricity traders, which in parallel with balancing problems can lead to sudden and uncontrollable changes in prices. The lack not only of a mechanism, but even of an established vision for a national strategy for compensating energy vulnerable consumers is another key issue that has a direct bearing on the changing role of NEK, which is not discussed for reasons unknown to us.

NEK's proposal to take away the function of "public supplier" and not receive more funds from the "Energy Security Fund" without first resolving the issue of long-term contracts by consensus will lead to shocks and problems with payment throughout the mine chain - thermal power plants. More than once we have expressed our firm position that it is necessary to reform NEK by restructuring and releasing some of the inherent licenses in its activities. Such a reform could turn the company into a profitable public listed company. However, decisions with legislative changes should not be presumed without resolving the trade issues in the chain, because we will again witness non-functioning regulations, but also non-functioning enterprises.

The proposed changes in NEK's status will lead to non-fulfillment of its obligations under its contracts with investors in the sector and suspension of payments, whereby the plants will inevitably stop working. This means that 1,500 megawatts of generating capacity will be lost to the power balance of the energy system, which represents 17% of electricity production. Such development will have serious socio-economic consequences for several regions in Bulgaria, as well as for the whole economy, as it will increase unemployment.

The proposed introduction of the so-called A capacity mechanism is a pan-European practice and, with good governance, can contribute to sustainable systematic work. However, the proposed changes lack the most important thing for this process - justification of the choice of model and analysis of how to ensure equality and competition between the different generating capacities, and this will lead to problems with the approval of a possible market model by of the European Commission. This will affect the stability of a number of energy companies, from where the chain will reach end users.

Almost all countries in Europe apply 33 different capacity payment mechanisms, which have been approved by the European Commission in accordance with the Guidelines for State Aid for Environmental Protection and Energy for 2014-2020. Bulgaria is once again at a stage unknown to the public on the topic, which puts at risk the operation of coal-fired power plants.

Unclear pricing schemes are set. They will affect the financial flows of companies, and hence their ability to meet their obligations effectively. The proposed mechanism for compensation once a year to final suppliers can lead to serious financial problems for all actors in the chain, incl. and to the risk of insolvency of any of them.

In conclusion, the proposed changes in energy legislation make the investment environment in Bulgaria uncertain and unpredictable - just at a time when the forthcoming Green Deal and the Coalition Efforts Mechanism for Coal Conversion require a calm and optimistic investment environment to succeed. At this point, instead of hasty legislative changes, Bulgaria must analyze and implement all possible policies to actively seek and attract new investment.

Contrary to the good European practices for substantiation and introduction of a national market model, which is the basis for effective use of existing capacities and investments in new capacities, we are witnessing once again non-market national practices - assignment of the debt of Toplofikatsiya Sofia, and soon another financial injection for the carbon quotas of TPP Maritsa East.”